Let the free market fix our hospitals

SHOULD you ever be seized by an inexplicable moment of masochism, a visit to Cecilia Makiwane Hospital in East London will serve your ends. During a recent visit to the hospital, I was met with overflowing litter containers that posed hygienic problems, blood smudges on the floor, and toilet doors hanging on broken hinges. This state of affairs is characteristic of public hospitals in SA.

My experience has focused my mind on the urgency with which we need to approach the reorganisation of this struggling sector.

The challenge is to make good quality healthcare accessible to all, including the poor. We should begin by recognising the successes of SA’s internationally competitive private health sector and ensuring this competitiveness is enhanced by appropriate policy decisions. Private sector healthcare providers deliver good quality products and care because they operate within a competitive context and comply with immutable economic principles — in other words, market forces. Quality and excellence are a consequence of competition.

With the intention of promoting competition, the government should not seek to constrain and contain the private sector, but should instead consider adopting policies that will result in a proliferation of private sector providers. This means that onerous policy constraints that prejudice the operation of private sector health providers must be removed.

All that is required is a paradigm shift on the part of policy makers — from an adversarial stance towards the private sector, to a bold view that there are lessons to be learnt from it. The achievements of our local health industry have come about in the context of a difficult, underdeveloped socioeconomic environment, and at no cost to the taxpayer.

Public hospitals are hamstrung by an inherent weakness — they are owned by an amorphous and distant entity, the state, and controlled by its apparatchiks. The government invests in public health using taxpayers’ money. But a government lacks focus. Its energies are dispersed over numerous other public investments, as well as governance and politics.

The interests of the apparatchiks are not those of hospital managers. Management’s job is to ensure the success of the enterprise. Whether these hospitals deliver good service is not a matter of direct concern to the apparatchiks. When things go wrong, they are not impelled to address the situation because it does not affect their status or remuneration.

This is a systemic weakness of public healthcare in developed and developing countries. It is inappropriate to blame “uncaring, insensitive and irresponsible” medical staff for the malfunctioning of public hospitals.

A solution would be to target functional divisions in the large public hospitals especially, and reconstitute them as autonomous corporate entities with staff involved as shareholders. The state then becomes the purchaser and not the provider of good quality care for the poor. In this scenario, the medical, cleaning and other staff become motivated shareholders of their corporatised entities. Initially, these companies enter into a contract with the government. If the quality of service, as mutually agreed upon in terms of the contract, is not achieved, they go out of business. After a reasonable period, the companies will be firmly consolidated as business entities, and their performance maintained through competition as contracts expire and renewal depends on winning the next tender against competing hospitals.

The important point is that this scheme is informed by what is in the best interest of the consumer — the patient: competitive delivery will result in real choice. Quality healthcare will come from highly motivated service providers whose survival in business depends upon pleasing the patients.

One may also confidently assume that taxpayers would be happy to see the state use their money to provide healthcare that really is good quality and accessible to the less fortunate.

All this is feasible. It requires only the stroke of the statutory pen.

The choice that confronts policy makers is between the alienating path of coercion and an approach based on voluntary incentives.

- Nolutshungu is director of the Free Market Foundation.

First published in the Business Day – 2010.09.01

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